Do You Know Where Your Federal Tax Dollars Go?
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The U.S. fiscal house stands on shaky ground. Marked by a federal debt that has eclipsed $34 trillion, growing annual deficits, persistent inflation, and rising interest rates, Americans are increasingly frustrated by both these risks and Washington’s gridlock over how to address them.
Lawmakers no longer have the luxury of focusing on just one side of the fiscal equation: we cannot continue to deficit finance our way through changing economic conditions. Revenue generated by the federal tax code is a critical part of the ledger. The federal government collects revenue from a variety of sources, including individual income taxes, payroll taxes that fund Social Security and Medicare, excise taxes, corporate income taxes, among other fees.
As taxes will be on most Americans’ minds throughout the 2024 filing season, there is an opportunity to increase public awareness and understanding of the revenue side of the ledger, starting with helping Americans better understand where their tax dollars go.
Paying Taxes: It’s Complicated
Americans have a complicated relationship with the tax system. In a 2023 Gallup poll, over half of taxpayers (51%) felt that the amount they paid in federal income taxes was not fair, the highest it’s been since the poll’s inception. Moreover, the findings suggest that Americans are more critical of federal income taxes, with most (34%) perceiving it as the least fair tax compared to federal Social Security tax (payroll tax), state income and sales tax, and local property taxes.
Not only do Americans think what they pay in taxes is unfair, they also have strong opinions on how tax dollars should be spent. A 2020 GoBankingRates survey found that more than half (56%) believe their tax dollars are not being spent effectively, with a majority saying they would prefer more of their tax dollars be prioritized for Social Security and Medicare. When it comes to spending tax dollars on other public assistance programs, which encompassed 11.8% of government spending pre-pandemic, opinions were split: 27% of respondents felt that spending was about right, 35% felt it was too much, and 39% felt it was not enough.
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Meanwhile, over a quarter (27%) of respondents did not know how their tax dollars were being spent. The data demonstrates that the gap between what Americans know, or think they know, can be pretty off-base from reality. A previous poll by the Kaiser Family Foundation found that most Americans overestimate how much of the federal budget goes toward social programs and international aid. However, with more information, perceptions changed: Once people learned how much the government spent on different public initiatives, their opinions about what was too much or too little also changed. Improving public awareness is thus key to building a more engaged, informed citizenry.
Educating the Public Using the Federal Taxpayer Receipt
The Bipartisan Policy Center partnered with Intuit and Polco to launch the Federal Taxpayer Receipt to help Americans better understand exactly where their federal taxes go.
The interactive tool provides taxpayers with an itemized list that estimates how their tax dollars are allocated across government programs and services based on how much they paid in federal taxes (or estimate they will pay) in a given year. Seeing how these funds are distributed by the federal government, from national defense and social programs to education and infrastructure, allows users to decide for themselves if their taxes are being put to good use. The receipt breaks down tax revenue contributions across eleven primary government spending categories, with more detailed breakdowns for key agencies and programs. Data in the tool is routinely updated to reflect the latest estimates from the Congressional Budget Office, the Office of Management and Budget, and other government agencies to ensure accuracy and effectiveness.
How do you think Washington’s doing when it comes to the budget? BPC’s twin Federal Budget Simulator tool invites users to explore the fiscal tradeoffs that drive the annual appropriations process, from energy innovation and education to health care, national defense, and Social Security. Propose policy changes to tax revenues and government spending and see how such choices impact the deficit and long-term fiscal outlook.
Conclusion
Deciding whether and how to spend or tax is fiscally difficult and politically near-impossible—but federal lawmakers will need to do both if they are to comprehensively address our long-term fiscal imbalance. Decisions of this magnitude, however, cannot happen in a vacuum—policymakers rely on the public to help understand the nation’s values when making these trade-offs. These tools are crucial to educating and engaging their constituents and the next generation of leaders on tax and spending policies and priorities. A better-informed public, after all, can lead to improved trust in government leaders, services, and the tax system. This, in turn, can spur public engagement to strengthen our nation’s fiscal foundation.
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